Preface

After spending much of his first term taking a cautious approach – backing down on mining in state parks, for instance, after a public uproar – New Zealand prime minister John Key has finally raised a very unpopular idea indeed. Key has promised to reduce national debt by selling up to 49 per cent of the government’s holdings in blue-chip power companies and the national airline, Air New Zealand.

The New Zealand government owns NZ$11.75bn (€6.5bn) worth of so-called “state-owned assets”, which are run on corporate models and return NZ$700m (€390m) a year in dividends. The float could return billions of dollars to the cash-strapped government, and a public float of such a size could rejuvenate the share market. But is it needed?

It’s certainly controversial – the assets are a relic of mid-20th century New Zealand, when it was one of the most tightly controlled and state-owned economies in the western world. In the 1980s, it became one of the most open, lurching from near-socialist control to a full-blown market economy, going further than many others in flattening taxes, removing welfare props and selling assets.

The country sold state forests, insurance companies, rail and telecommunications at fire-sale prices, until public resistance forced a halt in the 1990s. No politician has dared go near it since – in fact, the previous Labour government ended up taking an 80 per cent stake in a bankrupt Air New Zealand in 2005, and buying back the railways as well.

No longer. The small country’s emergence from recession has been sluggish – the treasury doesn’t expect the government’s books to return to surplus until 2014 or 2015 – and in January, Finance Minister Bill English revealed that the country is borrowing NZ$300m (€167m) a week to maintain spending. Worse still, Key and English’s last attempt at stimulating the economy – which cut the top rate of tax from 39 cents in the dollar to 33 cents and raised sales tax to 15 per cent last October – has done little more than put a dent in the government’s income as New Zealanders save, rather than spend, their tax cuts.

Key has argued that New Zealand’s national debt is out of control – it stands at a combined 90 per cent of GDP – and that the sales would allow Kiwi “mum and dad” investors to buy into blue-chip companies, encouraging saving and a more productive economy.

Critics say Key has just run out of ideas. New Zealand’s debt problem is private, not public, notes Selwyn Pellett, a tech entrepreneur and spokesman for the Productivity Economy Council. After a real-estate boom that lasted for much of the 2000s, the country’s private debt is huge – but government debt is actually relatively low.

A default on private debt would, he predicts, affect the four big banks, which are in turn owned by Australian banks, rather than the government – indeed, at the height of the global financial crisis those same banks pumped hundreds of millions of dollars into the New Zealand economy when their subsidiaries ran out of capital. “The justification for the plan is invalid, or at least greatly exaggerated,” he says. “Lumping these two types of debt together is at best mischievous – and at worst dishonest.”

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